Blockchain & stable crypto cuts international telecom costs
Telecoms is an industry with huge potential for savings from blockchain. International calls and data usage are on the rise and companies across the globe spend hours each month claiming payments from each other for traffic that has piggy-backed their infrastructure. Often disputed and requiring mediation to get agreement, these contract negotiations take time.
Blockchain could replace all those arguing people and achieve the same results in seconds. And it is a massive market. Global cross-border telecoms transactions are worth about $150tn a year, growing to $200tn in a few years, according to Juniper Research.
There are several blockchain projects in the pipeline but one such solution claims to be ahead of the game.
Clear and present
Eran Haggiag, co-founder and executive chairman at Israeli blockchain firm Clear, runs the technology behind the project. He says that the smart contracts solution is currently based on a private Ethereum blockchain but the contracts are blockchain-agnostic and could run on any appropriate digital ledger.
“We think that Ethereum provides a good balance between a proven technology and a developer-friendly environment, but we are always looking for other alternatives,” he tells OpenLedger. “The way that we build the architecture is you can build smart contracts on the system and they would be applicable in any blockchain.”
It has been a rapidly moving development. Haggiag took a concept he had used in the buying and selling of digital advertising. The system had to automate the contracts between buyers and sellers, accurately calculate page views or clicks and settle disputes when each side’s numbers differed, leading to fast, automated settlements.
International voice traffic
Haggiag needed to identify how telecom firms contract with each other for international calls, calculate payments as traffic crosses their infrastructures and how they resolve disputes. He then developed smart contracts to replicate those procedures automatically and instantly.
Clear presented the concept to the telecoms industry in June 2017 and sparked interest. Haggiag then worked with two leading players, Colt, headed by Carl Grivner, and PCCW Global, led by Marc Halbfinger. This has led to jokes about whether the industry’s cryptocurrency will be called the Carl or the Marc.
Telecom traffic was not much different to advertising sales, Clear discovered. They started with international voice traffic.
“What we did was look at the monthly settlements on a historical basis. We looked at historical data of one month between the two companies and then the settlement. We looked at the dispute resolution process of it and replicated it in a smart contract to get exactly the same number that they managed to get using the manual process,” Haggiag explains.
“Something that takes days for a person to do we demonstrated could be done in one minute.”
Haggiag presented a proof of concept in February 2018 and by April Colt and PCCW had agreed wholesale payments between each other using the blockchain solution, confirming the speed and savings.
Smart contracts individually tailored
The smart contracts are not a uniform solution. Different companies around the world interact and contract with each other individually – there are not standard terms and conditions. One firm might have several different contractual arrangements, each involving different prices and a different dispute resolution process.
The blockchain smart contract needs to be written to replicate the outcomes of those manual processes. It’s complex.
“The smart contracts have two types of logic: settlement logic and dispute resolution logic. Settlement logic is saying: how should I calculate what is the value of an invoice based on whatever call happened? It can include a rate card. it can include some other logic. It can be the hour of the day, the day of the week, it can include holidays and all of this type of logic that is written in the normal contract and can also be written as code in the smart contract,” Haggiag explains.
“The second part is dispute resolution. This is to say if both of us calculated but got different results, then what do we do if we have a dispute?” That would be an issue for the two companies to agree.
It might be that if the difference is less than 1% the invoice is paid or that the difference is split 50/50. For a slightly bigger discrepancy, you might examine the last 100 similar sized disputes and base the settlement on the average of those.
It might be the past 200 or 300 disputes. The key is to get a smart contract that achieves the same results in seconds that manually took days.
Mobile telecoms and data
While the initial test was on voice traffic on international calls, similar issues exist with data for mobile telecoms providers and travelling users. Data roaming can mean a user on the train or in a car can easily use data from several different national providers in a foreign country. Each of those may have different contracts with the home telecoms provider.
That is keeping Haggiag and Clear busy. “We are working out all those data roaming use cases and we are utilising a similar system. For every use case there is a different answer, there is different integration. But this is why the robust framework and infrastructure that we have, and we keep evolving, is such a big advantage compared with someone trying to develop that from scratch every time.”
The Clear phone has not stopped ringing. “Every week we have one, two or sometimes more companies approaching us for this solution and this is during the summertime. I’m talking about the biggest companies. I can’t give you names but you know them all,” he says.
Clear plans a major public launch at the beginning of 2019. “We are putting our efforts towards that. It is important and complex stuff, with very, very sensitive software and potentially handling a very big amount of money,” Haggiag says.
“We are making sure that we are providing the highest quality software possible – an enterprise-grade blockchain with an easy-to-use user interface (UI) and integration to the operations systems of the telecommunications industry.”
ESDR: a telecoms stable cryptocurrency
Beyond the launch of the smart contracts system is a potential further development of an internationally agreed cryptocurrency in which telecoms companies can settle their bills. Many are already familiar with the Special Drawing Right (SDR), an asset created by the International Monetary Fund in 1969. The value of the SDR is based on a basket of five currencies:
- US dollar
- Chinese renminbi
- Japanese yen
- British pound sterling
The IMF says: “The SDR was created as a supplementary international reserve asset in the context of the Bretton Woods fixed exchange rate system. The collapse of Bretton Woods system in 1973 and the shift of major currencies to floating exchange rate regimes lessened the reliance on the SDR as a global reserve asset. Nonetheless, SDR allocations can play a role in providing liquidity and supplementing member countries’ official reserves, as was the case with the 2009 allocations totalling SDR 182.6 billion to IMF members amid the global financial crisis.”
The proposal is, effectively, to create an electronic version, the ESDR. It would be like a stable coin, but pegged to the basket of five international currencies instead of just one fiat currency. That would enable firms to convert their ESDR tokens into any one of those five currencies easily without the volatile exchange rates other cryptocurrencies have experienced.
Fiat currency conversion
For many major firms engaged in lots of international traffic, there may be little need to exchange ESDR for fiat currency. One contract will result in a payment out while another would result in a payment in, offsetting each other.
However, smaller telecoms companies, particularly in tourist hotspots, earn significant revenue from overseas telecoms companies when travelling tourists make calls and use data.
Often these smaller countries, even islands, have few wealthy residents who travel abroad, so they are net gainers from international telecoms pricing. They will need frequent, fast and stable conversion to their preferred fiat currency.
“It is as easy as it is to do a bank transfer on a bank account. They will have in the UI an ability to decide how much they’re going to withdraw. They have a pre-registered bank account, so they can just do it. It’s going to be very fast. Everything is linked to the banking system. It’s not like the cryptocurrencies of today that are on their own regulation ecosystem,” says Haggiag.
But he stresses that if companies prefer to use a different cryptocurrency, the Clear system can cope with that too.
Who you gonna call?
All eyes – and ears – will be on the success of Clear’s official launch next year. But with trillions of dollars of transactions and thousands of hours of telecom staff time potentially saved, this could be one of the biggest benefits of blockchain yet seen.